The China Blog: Online Gaming, Telecom, Digital Home...

Tuesday, March 28, 2006

Asia Home Network Council

Asia Home Network Council, HUH?The impact of the “Big Three” in Asia, China, Korea, and Japan, will become more and more significant as governments and economic entities increase their collaborative efforts. I have heard that academics in these three countries have started working on quantifying the pros and cons of forming a free-trade zone. It seems these three countries are also collaborating on establishing relevant standards for the digital home. According to an article on ETNEWS in South Korea, Korea, China and Japan have agreed to make concerted efforts for standardization of home networking and a major step is the establishment of the Asia Home Network Council, or AHNC.

The Korea Home Network Industry Association said on Mar. 26 that it met with Chinese and Japanese counterparts during a standardization meeting and agreed to join hands for a broad range of home networking standardization initiatives. The three sides agreed to establish the Asia Home Network Council, and cooperate in expansion into the Asian and the world home networking market. The new council will be comprising of the Home Network Forum (HNF) of Korea, IGRS of China and EcoNet Consortium of Japan, which will work for promotion and interchangeability of standards. It will be co-chaired by the three countries, and have an operating committee for decision-making. Dr. Park Gwang-ro at the Korea Electronics and Telecommunications Research Institute, who is presently vice chairman and head of the operation committee of HNF, was named interim chairman of the council. The three sides also agreed to have four taskforces up and running, specializing in technologies, promotion, standardization and legal affairs, respectively. The three countries met three times since June last year, and drew up a plan for establishment of a council. And the arrangement came as they see a joint council as helping them secure a better position in the world home networking market. “We plan to hold workshops and exchange information over Web sites so as to address such hurdles to adoption of home networks as the lack of enactment of laws and interoperability," said Park. "We will devote resources to promoting home networks of the three countries in the world market.”

This is interesting news. So, South Korea and China have both tried to set up their own Wireless standards, including WAPI in China and WiBro in South Korea. WAPI has certainly failed although WiBro may have a bright future. Now these three countries are throwing their weights behind standardizing home networking. Considering the scope of IGRS (which I reported in this article earlier this year), it won’t surprise me if the standard puts a strong focus on entertainment home networking. It will also be interesting to see the impact of AHNC on DLNA. DLNA has not gained a lot of real market traction out of Japan and if Japan shifts its focus towards AHNC, combined with the heavyweights CE companies in South Korea and OEMs in China, you have to wonder what DLNA’s future will be like…

Saturday, March 25, 2006

GDC Part 2

GDC Part 2Other challengesData center license is strictly regulated in China. You cannot host a server without the license. The concept of hosting a server overseas just won’t work.. The government even needs to know the location of the server. Even setting up a personal BBS on your own server will need to get approved.

Conflicts among RegulatorsMultiple agencies want a piece of the lucrative market including GAPP-General Administration of Press and Publication, the MII and the Ministry of Culture. You have to deal with all of them. Many of their rules are quite ambiguous.

The Beijing AccordA government regulation from last August, which was designed to reduce the addiction to MMOs. The operators need to implement time restrictions. In particular for youth aged under 18. How effective has this been? It has not been very successful. The players and operators both have motivations to fight against it. The government does not have technical solutions to implement this.

The restriction was actually inadvertently introduced by Shanda. Shanda made an announcement before WOW was launched, which was going to implement a fatigue system. Shanda made an announcement without a solution but the government liked the idea. Shanda then dealt another blow to the industry by introducing free-to-play games.

Monte, nevertheless, believes this is important for the market. Too many social issues related to addiction and if the operators don’t deal with it, they risk the government shutting down the market.

Investment from the governmentThe 100-online-games initiative from the government. Is it going to be an even playing field? Is it another reason for not going to China?You need to read the details of the plans. It might be an accounting trick. The government may ask the operators to chip in and then count as part of its number. Monte has not seen any of that money. Many local governments already have large local grants. Xiamen actually has promotion policies to attract gaming companies.

Q&A sessionThe government requires SAP licenses for each company and for each game. If the game is developed by Chinese company, it’s easier, but for foreign companies it’s harder to get the approval.

What about guilds and in-game communication among gamers?Operators need to provide easy access to public securities and then they don’t need to bear a lot of responsibility. Some online guilds actually hire attorneys to fight for their rights.

Revenue and cost45% operation cost. The dominating model used to be 25-30 yuan per month for monthly subscription fee. Now we are in the age of virtual item trading. WoW is so popular in China, people are going crazy.

Shanda’s philosophy for introducing the free model: it hurts me a hundred and it hurts my enemy 1,000. It did not hurt the enemies more but hurt Shanda more. NetEase did not follow. They say they have quality games.For item-trading model: 17% of players playing casual gamers pay and they pay for everybody. 230,000 concurrent for Freestyle Street Basketball. They are making 15 million RMB a month based on virtual item-trading only.

Which is the best MMORPG operators to deal with since it seems to be the only way for foreign companies to enter, which is to license the games to local partners. Minor operators won’t give you good success.Shanghai: Shanda, The9, T2CN,Beijing: Sina and SohuShenzhen: TencentGuangzhou: Netease

Friday, March 24, 2006

Blogging from GDC

Blogging from GDC.

I’ve spent the past several days at GDC (Game Developers Conference). The San Jose Convention center was packed with geeks, dorks, and suited-up business people.

I’ve never seen a longer line for a keynote than the one waiting for Sony’s Phil Harrison’s keynote on Wednesday, which literally circled the Civic Center. Of course, only when I reached the end of the line, a nice girl told me that press and analyst can just go through the VIP entrance. In my personal humble view, the Nintendo keynote on Thursday beat the Sony keynote. It’s funnier and Mr. Iwata talks about how to expand the gaming market beyond the hard core gamers. Too bad I did not get a copy of the Brain Age game, since I had to step out 15 minutes before the keynote ended for an important meeting.

What I really want to blog here is the panel on Friday morning, “Entering the Chinese MMO Market”. Which was moderated by Eugene Evans, VP of Business Development of Mythic Entertainment, a major U.S. MMO developer. The other panelists included Monte Singman and Zhan Ye. Monte is now the CEO of Radiance Digital Entertainment. He’s an old friend of mine, who sit on my panel at E3 2004, when he was still at Shanda Networks. Mr. Ye is the Editorial Director of a new Chinese magazine called Game Creation, the first of its kind. A gentleman from Shanda, who was supposed to be on the panel, was absent.

The panel was very interesting and informative. A variety of topics were discussed and a lot of juicy details revealed.Here are the highlights:

Chinese market in generalMonte: China is more than one market and local governments have their own motivations. It’s challenging for companies to operate. Shanda had local offices in each major city. It’s very expensive and laborious. For instance, there is no one logistic office in China that could ship goods to any address in China. Logistics is definitely an issue. In addition, there are also major differences between southern and northern China. For instance, online games are really flourishing in countries like Chendu and Chongqing, where people have a lot of free time. Gamers in Northern China may not want the same games.

Internet Café There are chains in China but there are also many small mom and pop shops. Definitely an interesting issue for both the regulators and operators. The Ministry of Culture administers the Internet Cafés and it has difference concerns than GAPP (General Administration of Press and Publication, the government body that regulates all media formats including games).

In China, the cafés don’t share the game operators’ revenue, unlike in South Korea, and therefore they need to look for other revenue streams. For instance, they charge the operators $3 per PC to place the games on the desktop. The operators also pay for posters to promote the games in those Cafés. They charge $3 per poster. It’s also funny that you can outbid the other companies by paying more. For instance, you can pay $4 to tier down the posters from another company and then $3 to post yours.

Piracy issuesThere is no easy answer here. Cleaning up piracy takes time. The government will first stop the piracy for local publishers, and then foreign publishers.

Hosting Servers OverseasCan you put the servers outside of China and then only circulate the clients in China? Is it possible? China has the Great Firewall that can cut off the access to the servers and groups of IP addresses. China’s firewall is very advanced. There is no way to operate servers overseas. There are also payment issues. The government is using advanced American technologies, predominantly from Cisco systems. You have to be in China or have a local partner!!!!

Wednesday, March 08, 2006

In-Game Ad Making Big News in China with the Coke-T2CN announcement

I apologize for the lack of new entries for the past week. I’ve been traveling in the Bay area, attending the Intel Developer’s Forum and speaking at the Game Marketing Conference. GMC was actually a very cozy and interesting event, with a lot of good people to network and exchange opinion with. Also, there were a couple of questions about hot international gaming markets like China.

I want to report one interesting development in the Chinese gaming market. At the end of February, Coca Cola made a significant announcement with a Chinese gaming company, T2CN (天联世纪); the two parties will launch a collaborative advertising and promotion effort surrounding Free Style Street Basketball, a multiplayer sport game was developed in South Korea and distributed by FSJOY in China. The deal is valued at more than $10 million and will last for one year. The agreement includes several elements:

In-game advertisements for Coke;

Co-promotion campaign-print the logo for the game on every can or bottle;

Co-promotion through TV-advertisements; and

Co-sponsor offline basketball tournaments.

The CEO of T2CN said that the five courts in the game commands different prices for in-game ads, ranging from $120,000 to $250,000 per month. It seems the in-game ad piece alone is worth between $1 and 2 million. In the meantime, the company is negotiating with 15-20 potential advertisers and is expecting to announce new clients in the next few months. These figures are dwarfed by what the South Korean publisher, JCE, is making in South Korea. The company already signed up more than 20 million registered users, with a concurrent user base of 300,000. The game is free, but JCE is generating more than $1 million per month just in advertising revenue. In addition, it’s making $2 million a month in other value-added features such as selling cool virtual jerseys and shoes.

As more US companies start paying attention to alternative online gaming business models such as in-game trading, value-add, and in-game advertising, it seems Asian gaming companies are again leading the way. With early success in South Korea, it is no wonder many Chinese companies, including Shanda Networks, are following the lead and diversifying their business models.